Based on the analysis of multi-factor investment strategies over the long term, the factor combination that yielded the highest return was Momentum and Quality.
This finding is based on an analysis of 20-year SIP returns (Systematic Investment Plans), assuming a 50:50 allocation split between the two factor indices.
The top performing factor combinations were:
- Nifty 500 Momentum 50 + Quality 50: This combination delivered the highest annualised return of 18.9 per cent.
- Momentum + Low Volatility: This was the second-highest performer, returning 18.7 per cent annually.
- Value 50 + Alpha 50: This combination followed closely, returning 18.6 per cent annually.
These multi-factor strategies aim to smooth out the investment journey and improve long-term performance by combining complementary factors.
It is also noted that the combination of Nifty 500 Low Volatility 50 + Nifty 500 Momentum 50 and the combination of Nifty 500 Momentum 50 + Nifty 500 Quality 50 delivered outperformance over both the Nifty 500 TRI and average flexi-cap funds in over 90 per cent of periods when tested based on three-year rolling returns over the past 20 years.
Note on Downside Risk: While these combinations delivered strong long-term returns, analysis suggests that multi-factor portfolios combining these indices may suffer steeper falls during periods of market turmoil (crashes of over 15% in the Nifty 500 TRI since 2008) compared to the Nifty 500 index and average flexi-cap funds.
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